A decrease in the level of loan approval in Russia, which will follow the new requirements of the Bank of Russia, which entered into force on October 1, may have a negative impact both on the market as a whole and on the population. Economist Andrei Barhota discusses the prospects for the lending market in the country.
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One of the most pressing problems of the retail lending market is the growing level of debt burden of the population. If ten years ago a borrower was considered overleveraged if he allocated more than 40% of his monthly income to debt service, today Russians allocate an average of 41% of their income to pay off loans, while 2/3 of the population are in the zone of high debt burden. The current situation is due to the fact that the annual growth rate of lending to the population in the last 5 years has not fallen below 15%, while the increase in real disposable income of the population in the same period rarely exceeded 3%.
As a result, a significant portion of newly issued consumer loans goes to servicing previously taken out debts and closing cash gaps. In conditions of high interest rates, overpayments of citizens on loans continue to grow, as does the debt burden in general, the phenomenon of refinancing at a loss for the borrower is manifested: new loans are issued at an increasingly higher interest rate, and servicing these debts requires more and more effort from the population.
The mega-regulator sees serious threats to financial stability in light of the current situation. In the fourth quarter of 2023, the Bank of Russia tightened macroprudential limits on loans with a maximum debt burden of more than 80%. In other words, it will be more difficult for debt-ridden citizens to get a new loan. Decisive actions of the Bank of Russia to limit the volume of lending to households with a high debt burden are dictated by the worsening crisis processes in the segment under consideration.
At the same time, new bans and restrictions aggravate the situation of the most vulnerable sections of society, driving them into a hopeless situation, because we are talking not only and not so much about the increase in the cost of new borrowings, but about a decrease in the level of approval of consumer loans and an objective drop in their availability for the population.< /p>
The consequences of the new restrictions could be quite dramatic and socially sensitive. Thus, it is possible that at least 70% of borrowers who were refused by the bank will go to credit brokers and microfinance organizations to receive financing on any terms. And this means considerable additional costs for disadvantaged segments of citizens and a changing likelihood of success. Macroprudential innovations of the Bank of Russia will create conditions for a renaissance of usury and pawnshop lending.
Like Rodion Raskolnikov carrying his mother’s gift to an old pawnbroker as collateral for a new loan, Russians who find themselves on the edge of a financial abyss will go to pawnshops and microfinance organizations for essential funds to close individual financial holes. Unfortunately, given the hopelessness of the situation, an increase in the volume of applications for recognition of individual bankruptcy and an increase in the number of suicides due to the plight of citizens are inevitable.
It turns out that, having weakened the threats to financial stability, the risks for our fellow citizens directly increase. But a difficult financial situation in most cases does not arise at all because of wastefulness or irresponsible behavior, but because of the rather low incomes of the population. In our country, the phenomenon of the “working poor” is fully manifested, when full-time employment or professional work barely allows people to make ends meet.
To resolve the accumulated critical problems, a fundamental change in the view of the situation is necessary. Isn’t it time to consider citizens with high debt burdens not as violators of the financial stability regime, but as compatriots who find themselves in difficult living conditions? After all, restrictions on issuing new loans resemble a kind of financial euthanasia for borrowers with a high level of debt burden.
A way out of the crisis is only possible through united efforts. Firstly, it is necessary to carefully study the experience of developing and developed countries in terms of material assistance to needy segments of the population on acceptable terms. We are not talking about modified microfinance, but about a new social policy, where the double excess of a courier’s income over a teacher’s salary is regarded as a criminal mistake, and not as a labor market phenomenon. Secondly, it is necessary to differentiate the measures of influence of the Bank of Russia on the retail lending segment by clusters of credit institutions. Those banks that strive to restore the solvency of the borrower, and not to enrich themselves, need to provide special preferential lending programs that level out the restrictions on financing debt-ridden citizens.
Thirdly, it is important to ensure control over the President’s instructions to ensure rapid growth in household incomes. Thus, in the case of above-plan wage indexation, organizations could qualify for tax benefits and special lending conditions. At the moment, such a concept is partly embodied only in the information technology industry, and such a criterion as new jobs is not included in the lists of key indicators of the effectiveness of economic policy.
If you do not take these steps today, then tomorrow there may be late. According to Opora Rossii, two-thirds of citizens today have an increased demand for loans, fearing a new rise in interest rates and a decrease in the availability of loans in general. Many of them are confident that in the foreseeable future there will be some kind of “apocalypse” that will make it possible to write off the entire unbearable burden of debt. Constant unilateral restrictions on new funding have created irrational sentiments in society, which can cause much more serious socio-economic problems than those we have today.